Judge: Robert S. Draper, Case: 22STCV01184, Date: 2022-08-02 Tentative Ruling

Case Number: 22STCV01184    Hearing Date: August 2, 2022    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Defendant Vagator Production Sarl’s Motion for Judgment on the Pleadings is GRANTED with thirty days leave to amend.

Plaintiff Humanoids, Inc.’s Demurrer is OVERRULED as to the First, Third, and Seventh Causes of Action.

Humanoids, Inc.’s Demurrer is SUSTAINED as to the Second and Fourth Causes of Action. Vagator is granted thirty days leave to amend on these causes.  

FACTUAL BACKGROUND   

This is a consolidated action for breach of contract. The original Complaint filed by Plaintiff Humanoids, Inc. alleges as follows. Plaintiff Humanoids, Inc. (“Humanoids”) entered into a written agreement (the “Agreement”) with Defendant Vagator Production Sarl (“Vagator”) to co-publish a book provisionally entitled Metal Hurlant Off Serial (the “Project”). (Compl. ¶ 6.) The parties then entered into a First Addendum (the “Addendum”) which allowed for either party to terminate the Agreement at any time by sending a registered letter with acknowledgment, giving three months’ notice. (Compl. ¶ 7.)

Following disputes over production, Humanoids exercised its right to terminate the Agreement in accordance with the Addendum. (Compl. ¶ 9.) Nonetheless, Vagator has contested Humanoid’s right to terminate the Agreement pursuant to the Addendum. (Compl. ¶ 10.) Additionally, Vagator submitted an invoice to Humanoids that lists items not properly invoiced to Humanoids under the Agreement, in breach of the parties’ agreement regarding costs. (Compl. ¶ 26.) As a result of these breaches, Humanoids has been forced to delay important decisions, retain the services of other vendors at greater costs, and has had its reputation and image damages. (Compl. ¶ 28.)

Vagator’s Complaint alleges as follows. The release of the aforementioned Project was very successful. (Compl. ¶ 19.) Nonetheless, Humanoids terminated the agreement without cause. (Compl. ¶ 20.) In so doing, Humanoids violated a provision of the Addendum requiring both parties to use their “best efforts” to continue working together on the Project. (Compl. ¶ 23.) Additionally, Humanoids has refused to pay for costs that it owes Vagator (Compl. ¶ 25) and has needlessly publicized its split with Vagator. (Compl. ¶ 28.) 

PROCEDURAL HISTORY 

On January 11, 2022, Humanoids filed the Complaint (the “Humanoids Complaint”) asserting two causes of action:

1.    Declaratory Judgment; and

2.    Breach of Contract.

On March 25, 2022, Vagator filed a Complaint (the “Vagator Complaint”) in LA Superior Court Case No. 22STCV10438 asserting seven causes of action:

1.    Breach of Contract;

2.    Breach of Implied Covenant of Good Faith and Fair Dealing;

3.    Promissory Estoppel;

4.    Violation of Business and Professions Code section 17200;

5.    Defamation;

6.    Accounting; and

7.    Declaratory Relief.

On May 10, 2022, Vagator filed the instant Motion for Judgment on the Pleadings.

Also on May 10, 2022, Humanoids filed the instant Demurrer.

On June 2, 2022, Vagator filed an Opposition to Humanoids’ Demurrer.

On June 8, 2022, Humanoids filed a Reply.

On June 16, 2022, this Court filed an Order consolidating the two actions pursuant to both parties’ stipulation.

On June 29, 2022, Humanoids filed an Opposition to the Motion for Judgment on the Pleadings.

On July 6, 2022, Vagator filed a Reply.

DISCUSSION

I.               MOTION FOR JUDGMENT ON THE PLEADINGS

First, Vagator moves for judgment on the pleadings.

A defendant may file a motion for judgment on the pleadings after filing an answer and the time to demur has expired. (Code Civ. Proc., § 438(f)(2).) A defendant may move for judgment on the pleadings on the ground that the “complaint does not state facts sufficient to constitute a cause of action against that defendant.” (Code Civ. Proc., § 438(c)(1)(B)(ii).) 

Thus, the standard for ruling on a motion for judgment on the pleadings is essentially the same as that applicable to a general demurrer, that is, under the state of the pleadings, together with matters that may be judicially noticed, it appears that a party is entitled to judgment as a matter of law. (Bezirdjian v. O'Reilly (2010) 183 Cal.App.4th 316, 321-322.) Matters which are subject to mandatory judicial notice may be treated as part of the complaint and may be considered without notice to the parties. Matters which are subject to permissive judicial notice must be specified in the notice of motion, the supporting points and authorities, or as the court otherwise permits. (Ibid.) 

Judgment on the pleadings must be denied where there are material factual issues that require evidentiary resolution. The judge hearing the motion cannot consider discovery admissions or other evidence controverting the pleadings. Rather, the pleading under attack must be accepted as true. (Code Civ. Proc., § 438(d); Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 515-516; Lance Camper Mfg. Corp. v. Republic Indem. Co. of America (1996) 44 Cal.App.4th 194, 198; Cloud v. Northrop Grumman. Corp. (1998) 67 Cal.App.4th 995, 999.) 

A motion for judgment on the pleadings may be granted with or without leave to file an amended complaint. (Code Civ. Proc., § 438(h)(1).) If the former, the court shall grant 30 days to the party against whom the motion was granted to file an amended complaint. (Code Civ. Proc., § 438(h)(2).) Leave to amend should be granted if there is any reasonable possibility that plaintiff can state good cause of action. (Eckler v. Neutrogena Corporation (2015) 238 Cal.App.4th 433.) Leave to amend a complaint is entrusted to the sound discretion of the trial court. (Haley v. Dow Lewis Motors, Inc. (1999) 72 Cal.App.4th 497.) 

Similar to where a demurrer is sustained, the plaintiff “has the burden of proving the possibility of cure by amendment.” (Czajkowski v. Haskell & White, LLP (2012) 208 Cal.App.4th 166, 173, quoting Grinzi v. San Diego Hospice Corp. (2004) 120 Cal.App.4th 72, 78-79, internal quotations omitted.) 

Here, Vagator argues that the Humanoids Complaint fails to assert a cause of action for Breach of Contract as the Humanoids Complaint alleges neither breach nor damages.

A.  Second Cause of Action - Breach of Contract

“The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.) 

Vagator argues that the only allegations regarding Vagator’s alleged breaches are that Vagator contested whether Humanoids’ termination of the Agreement was effective, and that Vagator improperly invoiced expenses to Humanoids. Vagator contends that these actions do not constitute breach.

In Opposition, Humanoids argues that its termination of the Agreement was completed in accordance with the Addendum. (Opposition at p. 3.) Accordingly, by refusing to accept Humanoids’ termination, Humanoids argues, Vagator violated the explicit terms of the Addendum. (Opposition at p. 4.)

Where there is a specific provision in a contract allowing for termination, and where a party attempts to terminate the agreement pursuant to that provision, the Court cannot envision how the terminated party would breach that provision other than by refusing to accept said termination. Absent clear authority stating otherwise, which Humanoids does not provide, the Court cannot find at the pleading stage that the refusal to accept a termination made according to the demands of the Agreement cannot constitute a breach of contract.

Next, Vagator argues that the Humanoids Complaint does not allege any damages resulting from this breach. The Humanoids Complaint alleges that as “a direct and proximate result of the foregoing material breach of contract by [Vagator], [Humanoids] has been forced to delay important decisions, retain the services of other vendors at greater costs, and its reputation and image has been damaged. . .” (Compl. ¶ 28.)

Vagator contends that “Humanoids alleges no facts in the Complaint to establish any nexus between Vagator’s objection to the purported contract termination and Humanoids’ decision to retain vendors at higher costs (or what that even means).” Additonally, Vagator notes that damage to reputation and image are not damages properly brought under a breach of contract claim.

In Opposition, Humanoids argues that the facts alleged “are damages sustained by Humanoids as a result of Vagator’s refusal to acknowledge valid termination.” (Opposition at p. 4).

While this might be true, the Court concurs with Vagator that the allegations contained in the Complaint are far too vague to put Vagator, or the Court, on notice of exactly what damages the alleged breach caused. How were these vendors related to Vagator’s refusal to accept Humanoids’ termination? If Humanoids desired to terminate the contract, would they not need to hire vendors regardless of Vagator’s reaction to said termination?

Absent clearer indication of what damages Humanoids suffered as a result of Vagator’s refusal to accept the termination, the Court cannot find a successful cause of action in the Humanoids Complaint.

Accordingly, Vagator’s Motion for Judgment on the Pleadings is GRANTED. Humanoids is granted thirty days leave to amend.

II.             DEMURRER

Next, Humanoids demurs to the First, Second, Third, Fourth, and Seventh Causes of Action in the Vagator Complaint.

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) In particular, as is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action.¿(See id.¿§ 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.”¿(Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. [Citation.]”)  

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.”  (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.) 

“A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.” (Khoury v. Maly’s of Cal., Inc. (1993) 14 Cal.App.4th 612, 616.) Such demurrers “are disfavored and are granted only if the pleading is so incomprehensible that a defendant cannot reasonably respond.” (Mahan v. Charles W. Chan Insurance Agency, Inc. (2017) 14 Cal.App.5th 841, 848.) 

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.) 

A.  First Cause of Action – Breach of Contract

“The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.) 

Here, Humanoids argues that it did not breach the contract, as their termination of the Agreement was in accordance with the Addendum. (Motion at p. 3; Compl. Exh. B.)

The Addendum states that “[t]he Agreement may be terminated at any time by either party by registered letter by acknowledgment of receipt, giving three months notice.” (Compl. Exh. B.) Humanoids argues that, as it followed the procedures established by the Addendum in terminating the Agreement, no breach has occurred.

In Opposition, Vagator argues that Humanoids breached the “Best Efforts” clause of the Addendum, which requires that the parties “shall use their best efforts to continue the Project beyond the publication of the Work.” (Opposition at p. 4; Compl. ¶ 16; Exh. B.)

The Complaint alleges that “Humanoids, rather than continuing the co-publishing Agreement with Vagator, devised a plan to reap all of the benefits and profits from Vagator’s substantial investment and hard work to reboot Metal Hurlant by squeezing Vagator out of the relationship.” (Compl. ¶ 20.) Vagator notes that California courts have repeatedly enforced best effort clauses such as this. (See Midland Pacific Building Corp. v. King (2007) 157 Cal.App.4^th 264, 274.) Additionally, Vagator contends that whether a party exercised best efforts is a factual determination.

In response, Humanoids argues that the Complaint fails to allege any specific acts by which Humanoids breached the Best Efforts clause. However, the Complaint alleges that the parties were “thrilled with the results of the launch and saw the potential to earn huge profits from future publications”, that “just one week after the lunch, Humanoids sent a letter to Vagator stating that it was terminating the Agreement, citing ‘impossible to resolve’ ‘difficulties’ between the parties, and that “there were no unresolved ‘difficulties’ between the parties and the launch was a tremendous success.” (Compl. ¶ 20.)

While Vagator makes a compelling argument that its termination was in accordance with the Addendum, the Complaint alleges that Humanoids breached the Best Efforts clause and provides facts supporting that allegation. The Court recognizes that there is a tension between the Termination Clause and the Best Efforts Clause of the Addendum, but the pleading stage is not the proper time to resolve that tension.

Additionally, the Court notes that the Complaint alleges “Vagator sent an invoice to Humanoids from the company who edited and printed the magazine,” that “as of the filing of [the] complaint, Humanoids has not paid this invoice,” and that “under the terms of the Agreement, Humanoids was obligated to pay the printing and editorial costs and to cash flow the joint account.” (Compl. ¶ 25.)

Accordingly, Humanoids’ Demurrer to the First Cause of Action is OVERRULED.

B.  Second Cause of Action – Breach of the Covenant of Good Faith and Fair Dealing

Next, Humanoids argues that the Complaint fails to state a claim for Breach of the Covenant of Good Faith and Fair Dealing.

“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” (Hicks v. E.T. Legg & Associates (2001) 89 Cal.App.4th 496, 508.) “[T]he scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.” (Id. at 509.) “The covenant of good faith and fair dealing . . . exists . . . to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 349.)   

“A ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself’ and it has been held that ‘[b]ad faith implies unfair dealing rather than mistaken judgment . . . .’” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394 (quoting Congleton v. National Union Fire Insurance Co. (1987) 189 Cal.App.3d 51, 59).) 

A plaintiff’s allegations of breach of the covenant of good faith that do not go beyond a statement of a mere contract breach may be disregarded as superfluous. (See Bionghi v. Metropolitan Water District (1999) 70 Cal.App.4th 1358, 1370.) 

Here, Humanoids argues that the Second Cause of Action is surplusage as it “is wholly premised upon the same Agreement and Addendum as the first cause of action for breach of contract.” (Demurrer at p. 4.)

The Court concurs. While Vagator argues that the Complaint “alleges that Humanoids materially breached the implied covenant of good faith and fair dealing by, among other things, reaping the benefits of Vagator’s hard work, efforts, and financial investment in the Project for over two years and then delivering notice of termination immediately after Vagator’s successful launch of the magazine” (Opposition at p. 6; Compl. ¶ 37), these are exactly the same allegations supporting Vagator’s Best Efforts argument for breach of contract.

Indeed, the Court cannot find how a “Best Efforts” clause is anything other than a covenant of good faith and fair dealing made manifest within the Agreement. While Vagator is correct that a breach of contract and breach of implied covenant of good faith and fair dealing claim are not mutually exclusive where the gravamen of the causes are different, there is simply no distinction between the facts supporting the two claims here.

Accordingly, Humanoids’ Demurrer to the Second Cause of Action is SUSTAINED with thirty days leave to amend.

C.  Third Cause of Action – Promissory Estoppel

Humanoids demurs to the Third Cause of Action for Promissory Estoppel.

“The elements of promissory estoppel are (1) a promise, (2) the promisor should reasonably expect the promise to induce action or forbearance on the part of the promisee or a third person, (3) the promise induces action or forbearance by the promisee or a third person (which we refer to as detrimental reliance), and (4) injustice can be avoided only by enforcement of the promise.”  (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 803, reh’g denied (Apr. 11, 2013), review denied (July 10, 2013).) “The party claiming estoppel must specifically plead all facts relied on to establish its elements.”  (Smith v. City and County of San Francisco (1990) 225 Cal.App.3d 38, 48.)  A conclusory allegation of detrimental reliance is insufficient.  (See id.)     

“If actual consideration was given by the promisee, promissory estoppel does not apply.” (Fleet v. Bank of America N.A. (2014) 229 Cal.App.4th 1403, 1413.) 

“Although a cause of action for promissory estoppel is inconsistent with a cause of action for breach of contract based on the same facts [citation], ‘[w]hen a pleader is in doubt about what actually occurred or what can be established by the evidence, the modern practice allows that party to plead in the alternative and make inconsistent allegations.’”  (Fleet v. Bank of America N.A., (2014) 229 Cal.App.4th 1403, 1413 (quoting Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1402).) 

Here, Humanoids argues that Vagator’s claim for Promissory Estoppel is based exclusively on Humanoids’ purported breach of contract, for which Vagator received consideration. Accordingly, Humanoids argues, the Promissory Estoppel Cause of Action cannot survive.

While the Court agrees that Vagator’s Promissory Estoppel and Breach of Contract claims are likely redundant, the Court will adhere to the modern trend of allowing both claims to survive demurrer, with the understanding that Vagator will likely have to dismiss one cause once discovery is completed.

Accordingly, Humanoids’ Demurrer to the Third Cause of Action is OVERRULED.

D.  Fourth Cause of Action – Violation of Business and Professions Code Section 17200

Next, Humanoids demurs to the Fourth Cause of Action for Violation of Business and Professions Code 17200.

To successfully plead a UCL claim for unfair business practices, a plaintiff must allege facts justifying relief in the form of protecting the public from unfair business practices or deceptive advertising. (Day v. AT&T Corp. (1998) 63 Cal.App.4th 325, 331-332.) A plaintiff must plead and prove that the defendant engaged in a business practice that was either unlawful (i.e., is forbidden by law) or unfair (i.e., harm to victim outweighs any benefit) or fraudulent (i.e., is likely to deceive members of the public).  (Albillo v. Intermodal Container Services, Inc. (2003) 114 Cal.App.4th 190, 206.) 

Pursuant to Bus. & Prof. Code, § 17204, a private party must have “suffered injury in fact and has lost money or property as a result of the unfair competition” to pursue a claim. “To satisfy the narrower standing requirements imposed by Proposition 64, a party must now (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 322.) “There are innumerable ways in which economic injury from unfair competition may be shown. A plaintiff may (1) surrender in a transaction more, or acquire in a transaction less, than he or she otherwise would have; (2) have a present or future property interest diminished; (3) be deprived of money or property to which he or she has a cognizable claim; or (4) be required to enter into a transaction, costing money or property, that would otherwise have been unnecessary.” (Id. at 323.)

Here, Humanoids argues that the Complaint does not allege that Humanoids engaged in unlawful or unfair business practices. Additionally, Humanoids argues that the Complaint does not allege any injury in fact. (Demurrer at pp. 7-8.)

In Opposition, Vagator argues that the Complaint sufficiently alleges that Humanoids promised to continue working with Vagator after the release, then rescinded that promise without cause. (Compl. ¶ 46.) Additionally, the Complaint alleges that Humanoids publicized that it had terminated the Agreement with Vagator, thereby violating fundamental notions of fairness and honesty. Moreover, Vagator argues that these actions are likely to mislead the public regarding Vagator’s reputation and business. (Opposition at p. 9.)

While these actions do constitute an unfair business practice, the Opposition does not address the issue of injury in fact. As Humanoids notes, “California law provides that the only remedies available for a UCL claim are restitution and injunction.” (Bus. & Prof. Code §§ 17203-17204.) Humanoids argues that, as Vagator was never entitled to Humanoids’ share under the Agreement, or to enjoin Humanoids for the use of its trademark, no such damages are stated.

The Court concurs. The Complaint does not state injuries in fact sufficient to establish a claim under section 17200.

Accordingly, Humanoids’ Demurrer to the Fourth Cause of Action is SUSTAINED with thirty days leave to amend.

E.   Seventh Cause of Action – Declaratory Relief

Finally, Humanoids demurs to the Seventh Cause of Action for Declaratory Relief.

CCP section 1060 provides that a person may bring an action for declaratory relief if he or she “desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property . . . .” (Code Civ. Proc., § 1060.) A request for declaratory relief may be brought alone or with other relief. (See id.) 

To state a declaratory relief claim, the plaintiff must allege a proper subject of declaratory relief and an actual controversy involving justiciable questions relating to the party’s rights or obligations. (See Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.) The validity of a contract is a proper subject of declaratory relief. (See Code Civ. Proc., § 1060.)

While declaratory relief operates prospectively, a proper action for declaratory relief can redress past wrongs. (See Travers v. Louden (1967) 254 Cal.App.2d 926, 931.) 

Here, Humanoids argues that there is no valid claim for declaratory relief, as “the right of termination exercised by Humanoids, Inc. was not ‘unlawful and did not constitute a willful breach of the Agreement.” (Demurrer at p. 8.) Additionally, Humanoids argues that Vagator’s request for a judicial declaration for sharing all profits from the sale of all issues of the Project is in direct opposition to the words of the Agreement. (Ibid.)

As addressed above, the Court finds that there is a dispute between both parties regarding their rights and obligations under the Agreement.

Accordingly, Humanoids’ Demurrer to the Seventh Cause of Action is OVERRULED.

DATED: August 2, 2022                                                  

______________________________

Hon. Robert S. Draper

Judge of the Superior Court